BAY OF PLENTY BUSINESS NEWS SEP/OCT 2018

BAY OF PLENTY BUSINESS NEWS September/October 2018 21
Size doesn’t guarantee security
when it comes to contracting
I had a meeting recently with an earthworks company and one
of their comments was, “I don’t need terms of trade or to be
a secured creditor, because I only deal with large construction
companies.”
CREDIT MANAGEMENT
> BY NICK KERR
Nick Kerr is Area Manager BOP for EC Credit Control NZ Ltd.
He can be reached at nick.kerr@eccreditcontrol.co.nz
My response was to
remind them that
Mainzeal, Ebert,
Orange H and other large construction
companies have run
into difficulties in recent times,
despite their size.
Being a small supplier to a
large company doesn’t make
you safer - it just makes you
part of a larger group of creditors.
Whether that larger group
gets paid or not depends on a
number of factors.
The main risk that I have
seen with small subcontractors
working exclusively with one
large client on a large project, is
that to secure the work there are
often multiple tenders or bids.
To have a good chance of
success amongst many competitors,
the bids are often
priced at a very low margin,
with the hope that the total
quantity of work will make up
for the lower margin.
But in my experience, a low
margin is a low margin irrespective
of the job size.
And that low margin brings
with it the possibility of unexpected
costs and unforeseen
difficulties turning a low-margin
into a no-margin scenario.
Another risk is that many
of the subcontractor agreements
large companies have
their subcontractors sign are
blatantly one-sided.
And because the company
may well have executed
hundreds of these type of projects,
you had better believe
that every single clause in the
contract is there to protect the
company from loss.
It is likely to be based on
something that does and has
happened.
Loss never just evaporates
- it is always experienced by
someone in the construction
supply chain.
And large companies hire
professionals whose entire role
is to try and ensure that it is not
them that suffers the loss.
Just a few months ago I
read in a subcontractor agreement
a client had been asked to
sign the following clause:
“The contractor agrees
that they will not increase the
quoted price, irrespective of
changes made to plans, specifications
or requirements.”
Agreeing to this would, in my
view, be ill-advised and potentially
could prove to be financial
suicide.
Now I’m not saying that just
New Zealand’s biggest
ever forest industry
delegation to China’s
showcase Global Wood Trade
Conference made the case
for more investment in New
Zealand forestry and timber
processing.
Forest Owners Association
President Peter Weir told
delegates at Chongqing that
more timber processing in
New Zealand before export,
reduced overall energy and
carbon emissions required to
produce and transport the finished
product.
“There’s also a particular
opportunity for primary processing
of pruned logs in New
Zealand, rather than the current
approach of mixing quality
logs with sap-degraded logs
and a subsequent loss of value
There’s also a
particular opportunity
for primary
processing of
pruned logs in New
Zealand…
– Peter Weir, Forest
Owners Association
because a construction company
is large, they are in some
way unethical or predatory.
But in a situation where
unforeseen circumstances can
impact the potential profit of a
job, it is essential that both parties
can share driving the bus,
not be driven over - or under.
When one of the largest
and oldest-established companies
in NZ can lose more than
$100 million on a single job,
it shows that it can happen to
absolutely anyone.
Entering into unsecured,
unequal agreements to get the
work, can be likened to playing
rugby against a team when
only one of you has a set of
goalposts and the opposition
also has the referee on its side,
or getting married with only
party having a say in writ-
Kiwi forest industry looks
to China for investment
by both parties,” said Weir.
New Zealand Forestry
Minister Shane Jones told the
conference New Zealand was
heavily reliant on access to
foreign capital and also has a
Peter Weir
need to substantially increase
its forest reserves.
That was behind the government
creating a more
streamlined process for investment
in forestry using foreign
capital, and created a special
opportunity for those interested
in working with New
ing the vows (goodness knows
what I would have agreed to, if
my wife wrote our vows!)
If the only difference I ever
make to a business is helping
ensure they enter more equal
Zealand, he said.
Jones invited potential
investors to consider connecting
with the New Zealand
industry representatives.
The invitation comes at a
time when there is increasing
concern in China with the
implications of the US tariffs,
with President Donald Trump
recently announcing tariffs on
$200 billion worth of products,
on top of the $50 billion
worth already taxed earlier
this year.
If implemented, almost half
of all Chinese imports into
the US will soon face levies.
The next wave of tariffs were
scheduled to go into effect in
late September, starting at 10
percent before climbing to 25
percent by January 1, 2019.
Numerous Chinese speakers
at the conference referred
to the trade war with the US
and that they anticipated this
would a long drawn-out battle.
Commentators at the conference
believed the impact of
increased US tariffs could cost
contractual relationships, and
making sure they will have
ranking as a secured creditor in
the event of something going
wrong, then I would consider
my involvement a success.
China 1.5 percent of its GDP.
On the positive side, Weir
said potential Chinese investors
acknowledged the US
trade problems were an opportunity
to strengthen other trading
partnerships and thus welcomed
Jones’ comments.
New Zealand Forest growers
and processors reported
constructive engagement
with members of the China
Timber and Wood Products
Distribution Association -
the hosts of the Chongqing
Conference.
The CTWPD has thousands
of members across China and
there has been interest from
the Chinese members in both
the opportunities to invest in
forests and processing in New
Zealand, as well as securing
additional wood supply.
A number of the CTWPD
group have expressed interest
in a reciprocal visit to New
Zealand later in the year to
follow up on some of these
options.
– By DAVID PORTER
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